UncontrollableVariablesThatAffecttheHospitalityIndustry

ByCameronMoore,AreaLeader/Principal

For hoteliers, how you meet the travel needs of tourists and business professionals is a determinant of success. And as
withinanyindustry,thehospitalityindustryissubjecttoanumberofuncontrollablevariablesthataffectthoseinvolvedin
management or ownership of hotels, restaurants and other hospitality establishments. These uncontrollable factors
include local and global economics, population shifts, and legal changes. It is crucial to be aware of these variablesand
monitortrendstoensuretheirimpactonyourbusinessisapositiveone.

Economics
Whenspeakingabouttheuncontrollablefactorsinthehospitalityindustry,itisinreferencetothemacroenvironment.
External factors, such as unpredictable economic cycles of a nation or natural disasters, are among the factors those
working within the industry have no control over, yet often have the greatest impact. When economies go sour, the
hospitalityindustryoftensuffersbecauseofadropindiscretionaryspending.Tourismmaygobythewaysideduringtimes
of extreme economic difficulty, leaving industries within the hospitality industry, such as the hotel business, dependent
upon the continued patronage of the business community. However, despite the worse scenarios, responding
appropriately can lead to survival, stability and eventual success. Management must be forwardthinking in how the
situationishandled,andconsidertheirpricingmatrix,increasingcustomerloyaltyandofferingotherinducementsbeyond
competitiveratesthatwilldrawlodgers.

PopulationShifts
ItisnosecretthatAmericaischanging,andthepopulationwillbecompletelydifferentby2050.Itisprojectedthat20%
will be over the age of 65, 42% will be part of the labor force and an overwhelming majority of the population will be
millennials. Demographic changes have a major influence on travel demands in the hospitality industry. As quickly as
hotel guest demographics change, so do their preferences and cultural trends, so savvy hoteliers must adapt to remain
competitive.

One major population shift will likely occur by 2015, when it is expected that U.S. Baby Boomers will own 60% of the
nations wealth and account for 40% of the spending. Because this generation is transitioning into retirement, the
increasedopportunitiesandrelativeaffluencemakestheirtraveldemandsofupmostimportance.TheBabyBoomershave
adaptedaforeveryoungmindset,andprefertravelhabitsmoreassociatedwithyoungergenerations.Experientialtravel
ishighlydesirable,sincetheynowhavethetimeexploretheirinterestandpassions.

Another change to consider is the increasing migration to smaller cities and towns. As suburbs and country landscapes
becomemoreappealing,thepopulationshiftwillbringaboutadeclustering.Moresubcitiesandmultipolarcities
(severalsmallcitycentersratherthanonehugecity)willbecreated.By2050,suburbswillhavetheirownvibranttown
centers, and will bring about a revival of the heartland. In addition, secondary cities near airport hubs will also see
population growth. Millennial college graduates are flocking to cities like Baltimore, Louisville and Portland. How local
hotels adjust to meet the changing population demographics and travel profile will determine their viability
goingforward.



LegalChanges
Anotheruncontrollablevariablethat companieswithinthehospitalityindustryarelargely affectedbyischangesin law.
Theregulatoryenvironmentinthehospitalityindustrycanchangefromtimetotimeandthiscanhaveaneffectonthe
waythathotels,airlinesandrestaurantsallgoaboutconductingbusiness.Forinstance,achangeinthetaxlawsthatraise
thepriceofgaswillaffecttourismandcostsforthehospitalityindustryaswell.Anotherexamplewouldbechangestothe
wage structures. The New York Department of Labor is preparing to adopt a new Hospitality Industry Wage Order,
replacingindividualwageordersforthehotelandrestaurantindustries.Thechangeswerebasedonrecommendationsof
awageboard,resultinginmanysignificantchangestoexistingindustrypractices.

Signedattheendoflastyear,ATRAisagoodexampleofhowlegalchangesrelatetotheindustry.TheActgivesincentives
for investment in furniture, fixtures and equipment (FF&E), incentives to develop new products and technologies, and
incentivetohire.Taxpayersmaywanttoconsiderbuilding,expandingandinvestinginFF&E.Forgrowingcompanies,the
abilitytotakeSection179expensedeductionandbonusdepreciationcanhaveasignificanteffectonthecompanysability
toacceleratetaxdeductionsandfreeupcashflownecessaryforexpansion.Totakeadvantageofproductandtechnology
incentives, operators who have test kitchens and have investment expenses for developing new technologies and
procedures should see if they qualify for this potentially significant incentive. As for hiring incentives, there are added
incentivestohireindividualsintargetedgroups,suchasqualifiedveteransandresidentsofEmpowermentZones.There
isalsoanaddedincentiveforpotentialexpansionintoanEmpowermentZone.WhileATRAprovidessomeincentivesto
growbusinessandhirenewemployees,theActdoesnotresolvequestionsrelatedtotheAffordableCareAct(ACA),the
debtceiling,orchangestoSocialSecurityandMedicare.Theseunansweredquestionsmayhaveanimpactoneconomic
growthoverthenextfewmonthsthattaxpayersshouldconsider.

For information on how Paradigm Tax Group can assist you with the property taxes associated with your hospitality
properties, and how these variables affect them, please contact Cameron Moore at (678) 9546002 or
cmoore@paradigmtax.com.